OPINION | On orphan wells, dine-and-dash should not be the business model
Provincial legislation makes federal aid for oilfield cleanup problematic
This column is an opinion from Regan Boychuk, the co-founder and lead researcher of the Alberta Liability Disclosure Project.
In a speech at an oil lobby event on April 7, Alberta Premier Jason Kenney told industry insiders that oilfield reclamation may no longer be just the liability of oil and gas companies, but might also be what he called a "collective financial liability".
A collective liability for industry? Or a collective liability for Albertans?
With recent and looming changes to how orphan well cleanup is handled in Alberta, Kenney is showing us exactly what he means.
For decades, conservative governments in Alberta allowed oil and gas companies to pump profits into their pockets before dumping the mess on others.
Every licence to drill and operate a well came with the moral and legal obligation to return the site to near its previous state when production was complete. But not nearly enough of that is happening.
That lack of urgency should alarm taxpayers, who could find themselves on the hook for the expense of plugging hundreds of thousands of wells and cleaning up hundreds of thousands of wellsites — at a cost of hundreds of thousands of dollars each.
When we realize industry has already long been unprofitable and saved next to nothing for cleanup, our hair should be on fire.
Landowners and municipalities on the hook
It has gotten so bad that industry has stiffed landowners for tens of millions of dollars in compensation in recent years, refusing to even pay for access to land they do not own. And those kinds of misdeeds are officially endorsed by recent legislative changes.
Many companies are now also refusing to pay rural taxes, collectively owing $173 million and forcing small towns to cut services and raise taxes on everyone else.
The oilpatch's tax strike is tax evasion, but it's condoned by the premier.
And just as Ottawa negotiates a COVID aid package to put riggers in Alberta back to work cleaning up thousands of oil and gas wells, the United Conservative Party rammed through Bill 12, giving Alberta's cabinet the power to direct the work and funding of the Orphan Well Association.
The Orphan Well Association is primarily funded by the Alberta oil and gas industry and is a nonprofit organization that cleans up wells abandoned by companies that go insolvent or become bankrupt.
Unchecked, this politicization of the OWA could turn federal bailout dollars into a slush fund for the premier to reward allies and punish opponents with public dollars.
As the world moves towards cleaner energy, as oil prices tank again, and as the pandemic cuts oil demand dramatically, the world's richest and most powerful sunset industry wants protection from the discipline of the market. But what industry needs to do is properly fund the retirement of all its oilfield infrastructure while it still has two nickels to rub together.
In the bigger picture, Canadians are justified in wondering why public funds are needed to fund oilfield cleanup in the first place. By law, extractive industries in Canada, including oil and gas, are required to fund and carry out the cleanup of their own operations.
The "Polluter Pays" principle underpins both provincial and federal law — and without it, there is no solution to our cleanup crisis.
The day after Kenney's speech, the Alberta Liabilities Disclosure Project — an independent and non-partisan association of researchers, landowners, and experts — rang the alarm about Bill 12.
Our message: No public dollars can go towards oilfield cleanup without strict conditions. Without attaching strings like those I've outlined below, any federal loan to the OWA could politicize well cleanup and constitute a subsidy undermining the bedrock Polluter Pays principle.
First condition: the Alberta Energy Regulator needs to collect the full levy to fund the cleanup of all orphaned infrastructure every year. That's the law now, but it's ignored. If the AER levied industry properly, the OWA could have had another billion dollars to fund cleanup work this year alone.
Second, any federal loan to the OWA should be short-term: three years at most, to minimize both interest costs and default risk. If industry defaults on repaying the OWA loan, it will transform into yet another subsidy. We can't let that happen.
And because the sum of Alberta society is more than just the most powerful players in its dominant industry, the Alberta Liabilities Disclosure Project's third condition calls on the federal government to balance any oilpatch loans with investments and support for other stakeholders.
The ALDP is calling on Ottawa to fund an Indigenous steering committee focused on education and training to launch Indigenous-owned enterprises to lead cleanup. This could make the OWA loan a vehicle for Indigenous entrepreneurship and UNDRIP principles.
We're also calling for federal funding to help landowners clean up wellsites on their land and then recover the cost from the companies that profited from the well. The Supreme Court ruled in Smith v Alliance Pipeline that energy companies must pay when landowners clean up industry's mess for them.
Finally, Ottawa could stipulate that any federally-funded OWA cleanup work prioritize sites with unpaid municipal taxes and landowner compensation, so those debts can be rolled into industry's cost of cleanup. Because the federal loan will be repaid through the industry-wide orphan levy, this would mean taxpayers would no longer be responsible for paying the debts of companies that shirked their responsibilities.
Privatizing profit while socializing costs is a cliché of capitalism taken to dramatic lengths in Alberta's oil patch, where the crude oil and natural gas industries have about $100 billion in unfunded cleanup of wells, pipelines and facilities on their books and have been unprofitable for a decade.
The end is near for many companies, but as long as their political representatives continue their bidding, the looting of the dregs of Alberta's natural wealth will continue.
The industry will walk away from this mess if we let them. We've been letting them for decades.
This era of misplaced generosity — where we pay for the oilpatch's tax cuts, bailouts, and now their cleanup — must end. Dining on the profits of public resources, then dashing on your dues to society is not a business model worth rescuing.
Albertans and Canadians must demand better.